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The Tax Burden of Typical Workers in the EU 27 2013 Edition James Rogers & Cécile Philippe May Data2013 provided by
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The Tax Burden of Typical Workers in the EU 27 2013 James Rogers Cécile Philippe Institut Économique Molinari, Paris
This report was produced by New Direction – The Foundation for European Reform, a free market, euro-realist think-tank established in 2010 in Brussels. It is affiliated to the Alliance of European Conservatives and Reformists (AECR). New Direction seeks to promote policies and values consistent with the 2009 Prague Declaration to help steer the European Union on a different course and to shape the views of governments and key opinion formers in EU member states and beyond. The views expressed in New Direction’s reports are those of the authors and do not necessary reflect the views of all members of New Direction. This publication received funding from the European Parliament. However, the views expressed in it do not necessarily reflect those of the European Parliament. May 2013 Printed in Belgium ISBN: 978-2-87555-032-3 Publisher and copyright holder: New Direction – The Foundation for European Reform Rue d'Arlon 40, 1000 Brussels, Belgium Phone: +32 2 808 7847 Email:
[email protected] www.newdirectionfoundation.org
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Table of Contents Objective of the Study ................................................................................................................ 4 Study interest ......................................................................................................................... 4 Main Results ............................................................................................................................... 5 Taxes continue to rise in Europe ............................................................................................ 5 Losers and winners ................................................................................................................. 5 Flat tax policies offer mixed results ........................................................................................ 6 Definitions and Methodology .................................................................................................... 7 2013 Tax Liberation Day Calendar ............................................................................................. 8 Data Summary ............................................................................................................................ 9 Research Notes......................................................................................................................... 10 Country Notes .......................................................................................................................... 12 Appendix 1: Employer Cost of €1 net....................................................................................... 13 Appendix 2: Taxation of Workers and Tax Revenue as a Portion of GDP ................................ 14 Endnotes................................................................................................................................... 15
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Objective of the Study The purpose of this study is to compare the tax and social burdens of salaried employees in the 27 Member States of the European Union and, in doing so, determine a “tax liberation day” for individuals who are working in those countries. In addition, the study tracks year-to-year trends in the taxation of labour.
Study interest Numerous studies rank political systems by various measures of “economic freedom”. While valuable to economists, the aggregate data in these studies fails to shed light on the working individual’s role in financing their state and social security. In addition, many think tanks determine an annual “tax freedom day” for their countries. Unfortunately, conflicting approaches to this calculation make cross-border comparisons difficult. This study aims to create an “apples to apples” comparison of “real tax rates”, with data that reflect the reality experienced by real, working people in the European Union. Further, it serves as a guide to the true cost of hiring employees in each state.
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Main Results Taxes continue to rise in Europe Typical workers in the European Union saw their average “real tax rate” rise again this year, from 44.89% in 2012 to 45.06% in 2013. The rise of 1.07% since this study series began in 2010 is, to a large extent, a consequence of VAT increases in 16 EU member states.
43.4% of all payroll taxes collected in the EU – employer contributions to social security paid on top of gross salaries – are largely invisible to employees. Retired, disabled, disenfranchised or simply too young, more than half (54.5%) of EU citizens are not in the labour force1. Tax-wise, working people carry most of the weight – a weight that grows heavier as populations grow even older. Since 2010, the proportion of Europeans outside the labour force has grown 0.2%.
Losers and winners Belgium retains its ranking as the country that taxes labour at the highest rate in the European Union. An employer in Brussels now spends 2.52€ (0.07€ more than a year ago) to put 1€ into a typical worker’s pocket – and that worker’s tax liberation day is August 8. Belgium has held its position since 2011 when Hungary, previously the most severe tax collector, implemented a flat tax scheme (see below).
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Flat tax policies offer mixed results Flat tax policies have offered considerable tax relief to workers in some countries – notably Hungary, where a 16% rate has brought that country’s tax liberation day forward by 22 days over three years. However, overall taxes remain higher in "flat tax" countries (46.82%) than in "progressive" systems (44.56%) – a gap that has widened since 2010 (when they were nearly identical).
Many of the purported benefits of flat tax rates have been proven true. Their simplicity facilitates compliance. Their low, “not-worth-the-crime” rates have prompted many underground dealers to emerge as “legitimate” businessmen. While providing tax relief to typical workers, they have also been successful in increasing overall tax revenues. The flat rate is, after all, only a flat income tax rate. Social security contributions in these countries are far higher than in progressive systems. Moreover, 5 of the EU’s 6 flat tax countries (all except Bulgaria) have raised VAT rates since 2009, with Hungary implementing two increases totalling 7%.
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Definitions and Methodology The following terms are used in this study: Real Gross Salary represents the total cost of employing an individual, including social security contributions made on top of an employee’s salary. Real Net Salary is the “bottom line” figure: How much cash a worker has to spend that will not be paid to the state. (Other additional taxes – such as those on petrol, cigarettes, and alcohol – are not considered in this study.) An individual’s Real Tax Rate is: Social Security Contributions + Income Tax + VAT Real Gross Salary
This percentage of 365 determines the Tax Liberation Day, the calendar date on which an employee (beginning work, in theory, on January 1st) would earn enough to pay his annual tax burden.
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2013 Tax Liberation Day Calendar
Data provided by
MARCH
14
Cyprus
APRIL
24 29
Ireland Malta
MAY
13 18 25
United Kingdom Bulgaria Luxembourg
JUNE
04 06 07 12 12 14 17 18 19 19 20 22 27 27
Portugal Denmark Slovenia Poland Spain Estonia Greece Lithuania Finland Czech Republic Slovakia Sweden Netherlands Latvia
JULY
01 10 13 16 23 26
Romania Italy Germany Hungary Austria France
AUGUST
08
Belgium
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Data Summary (ALL FIGURES IN EUROS)
Country
Real Gross Salary2
Employer Social Security
Gross 3 Salary
Income Tax
Employee Social Security
Take-home Pay (Net Income)
Austria
51,552
12,289
39,263
7,782
7,095
24,386
20.0%
58,235
15,495
42,740
12,338
5,558
24,844
Belgium †4
Bulgaria
Real Net Salary
Real Tax Rate
1,585
22,801
55.77%
23 July
21.0%
1,696
23,148
60.25%
8 August
VAT Rate
Estimated VAT
Tax Liberation Day 2013
3,956
586
3,370
294
435
2,642
20.0%
172
2,470
37.56%
18 May
Cyprus
25,680
1,635
24,045
582
1,635
21,828
18.0%
1,277
20,551
19.97%
14 March
Czech Republic
15,498
3,932
11,566
1,383
1,272
8,910
21.0%
608
8,302
46.43%
19 June
Denmark
51,610
290
51,321
19,080
145
32,096
25.0%
2,608
29,488
42.86%
6 June
Estonia
13,327
3,411
9,916
1,620
476
7,821
20.0%
508
7,312
45.13%
14 June
Finland
50,919
9,474
41,445
8,691
3,159
29,595
24.0%
2,308
27,287
46.41%
19 June
France
53,647
17,788
35,859
2,204
8,795
24,860
19.6%
1,584
23,276
56.61%
26 July
Germany
52,440
8,585
43,855
8,492
9,089
26,274
19.0%
1,622
24,652
52.99%
13 July
Greece
26,197
5,740
20,457
1,888
3,273
15,296
23.0%
1,143
14,153
45.98%
17 June
11,546
2,561
8,985
1,467
1,662
5,856
27.0%
514
5,342
53.73%
16 July
Ireland
36,372
3,530
32,842
4,654
1,049
27,139
23.0%
2,029
25,110
30.96%
24 April
Italy
37,699
8,668
29,031
6,871
2,755
19,405
21.5%
1,356
18,049
52.12%
10 July
14,230
2,763
11,467
2,359
1,261
7,847
21.0%
536
7,312
48.62%
27 June
Lithuania
9,145
2,201
6,944
1,041
625
5,277
21.0%
360
4,917
46.23%
18 June
Luxembourg
57,219
7,329
49,890
7,476
6,136
36,278
15.0%
1,769
34,510
39.69%
25 May
Malta
21,482
1,953
19,529
2,160
1,953
15,416
18.0%
902
14,514
32.44%
29 April
Netherlands
55,065
9,161
45,904
8,320
7,192
30,392
21.0%
2,074
28,317
48.57%
27 June
Poland
11,277
1,839
9,439
640
2,027
6,772
23.0%
506
6,266
44.44%
12 June
21,766
4,177
17,589
2,057
1,935
13,597
23.0%
1,016
12,580
42.20%
4 June
Romania
7,307
1,618
5,689
760
939
3,990
24.0%
311
3,679
49.66%
1 July
Slovakia
13,058
3,400
9,658
913
1,294
7,451
20.0%
484
6,967
46.65%
20 June
Slovenia
20,170
2,797
17,373
1,273
3,839
12,261
20.0%
797
11,464
43.16%
7 June
Spain
32,764
7,541
25,223
4,086
1,602
19,535
21.0%
1,333
18,201
44.45%
12 June
Sweden
57,421
13,728
43,693
10,784
0
32,909
25.0%
2,674
30,235
47.35%
22 June
United Kingdom
46,767
4,545
42,222
6,448
3,937
31,837
20.0%
2,069
29,768
36.35%
13 May
5
†
Hungary
†
†
Latvia
†6
Portugal †
Flat tax countries are marked with a dagger (†). An expanded data table is available at: http://www.institutmolinari.org
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Research Notes Gross Salary When available, figures from the OECD’s Taxing Wages and from Eurostat’s Average gross annual earnings in industry and services served as a starting point for our calculations; other figures came from government statistics offices. In euros, gross salaries ranged from 3,370€ (Bulgaria) to 51,321€ (Denmark). The median gross salary among EU Member States was 24,045€ (Cyprus), and the average among the 27 states was 25,900€. Gross salary figures can be misleading, especially in those countries levying high employer taxes for social security (see below).
Employer Contributions to Social Security These taxes – which are invisible to most employees, who see only deductions from their gross salaries on their pay slips – vary to a great degree. For typical workers, these costs range from less than 1% in Sweden and Denmark to nearly 50% in France.
Individual Contributions to Social Security Visible on employees’ payslips, the lower and upper reaches of these deductions are also set, respectively, by Sweden and Denmark (less than 1%) and France (nearly 25%).
Total Contributions to Social Security Recent tax cuts in Hungary have included social security contributions, leaving France (74.2%) as the only country taking more than half of a typical worker’s gross salary for social security contributions. As a group, flat tax countries collected 39.5% of the average gross salaries as social security contributions; 3.6% more than progressive systems. This gap has narrowed from 9% in 2011 and 5.6% in 2012.
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Personal Income Taxes In Denmark, where combined social security contributions remain the lowest (as a percentage), personal income taxes are the highest (37.2%). Notwithstanding the low rates advertised by governments imposing a flat tax, 9 of the 10 countries assessing income taxes at the lowest rates have progressive systems (the exception being Bulgaria).
Estimated Value-Added Tax (VAT) 16 EU Member States have increased VAT rates since 2009, with the largest hikes implemented in Hungary (from 20 to 27% since 2009), the United Kingdom (from 15 to 20%), Spain (from 16 to 21%), Romania (from 19 to 24%) and Greece (from 19 to 23%). Since 2009, the average VAT rate in the EU-27 has risen from 19.5 to 21.3%. To determine estimated VAT we assume, conservatively, that only 32.5% of a worker’s net income will be subject to VAT. Estimated Rent is assumed to be 35% of the employee’s net (take-home) income. After subtracting rent, remaining net income is divided in half to estimate the sum left over that will be subject to VAT when spent.
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Country Notes Belgium Those who believed Belgian taxes could only move in one direction (down) were proven wrong again in this year’s study; 2013’s “tax liberation day” for Belgian workers falls three days later than in 2012. Looking forward, Belgium’s leaders seem keen on holding their country’s “No. 1” position. In March 2013, the Di Rupo government announced plans to reduce debt to 100% of GDP by selling state assets, cutting spending and - of course - raising taxes.
Czech Republic On 01 January 2013 the Czech Republic abandoned its flat tax regime in favour of a “twobracket” system. The 15% flat rate of income tax still applies to gross earnings below CZK 100,000 (approximately 3,885€) per month; a rate of 22% is applied to higher amounts.
Italy Italy’s VAT rate rose from 20% to 21% at the end of 2011 and will rise to 22% on 01 July 2013. Thus the typical Italian worker will pay 21% for the first half of 2013 and 22% in the second half. In this report, consequently, we show 21.5% as Italy’s VAT rate.
Slovakia Slovakia also called an end to its flat tax regime and, like the Czechs, implemented a “twobracket” system. The 19% flat rate of income tax still applies to gross earnings below 39,600€ per year; a rate of 25% is applied to higher amounts.
Data provided by
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Appendix 1: Employer Cost of €1 net The chart below shows what employers must spend to pay each net euro to an employee. The figures do not include VAT.
€ 2.34
Belgium France
€ 2.16 € 2.11 € 2.00
Austria Germany Hungary
€ 1.97 € 1.94 € 1.83 € 1.81 € 1.81 € 1.75
Italy Romania Latvia Netherlands Slovakia Sweden
€ 1.74 € 1.74 € 1.73 € 1.73 € 1.72
Czech Republic Lithuania EU Average Finland
€ 1.71 € 1.70 € 1.68 € 1.67 € 1.65
Greece Estonia Spain Poland Slovenia Denmark
€ 1.61 € 1.60 € 1.58 € 1.50
Portugal Luxembourg Bulgaria United Kingdom
€ 1.47 € 1.39
Malta Ireland
€ 1.34 € 1.18
Cyprus €1 to Employee
Data provided by
0.50
1.00
Employer Social Security
Income Tax
1.50
2.00
Employee Social Security
2.50 Total
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Appendix 2: Taxation of Workers and Tax Revenue as a Portion of GDP The table below compares the “real tax rate” paid by typical workers in each EU member state to that same country’s ratio of tax revenue to Gross Domestic Product (GDP). Most countries that have a high “real tax rate” also have high taxes overall, though some, notably in Eastern Europe, combine high taxes on labour with a relatively low overall burden.
Data provided by
Country
Real Tax Rate
total tax revenue as a percentage 7 of GDP
Romania
49.7%
28.0%
Ireland
31.0%
28.2%
Slovakia
46.7%
28.8%
Latvia
48.6%
28.9%
Lithuania
46.2%
30.3%
Greece
46.0%
31.2%
Portugal
42.2%
31.3%
Spain
44.5%
33.6%
Poland
44.4%
31.7%
Estonia
45.1%
32.8%
Bulgaria
37.6%
33.3%
Czech Republic
46.4%
35.3%
United Kingdom
36.4%
35.5%
Hungary
53.7%
35.7%
Slovenia
43.2%
36.8%
Germany
53.0%
37.1%
Luxembourg
39.7%
37.1%
Netherlands
48.6%
38.7%
Cyprus
20.0%
39.2%
Austria
55.8%
42.1%
Italy
52.1%
42.9%
Finland
46.4%
43.4%
Belgium
60.3%
44.0%
France
56.6%
44.2%
Sweden
47.3%
44.5%
Denmark
42.9%
48.1%
Malta
32.4%
48.2%
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For more information, please contact the authors of the study: James Rogers
[email protected]
Cécile Philippe or
[email protected]
Endnotes Data provided by
1
CIA World Factbook, estimates of EU population (2012) and labour force (2011).
Total cost of employment, social security contributions, personal income tax figures and net income calculated by Ernst & Young from gross salary figures provided.
2
Unless otherwise noted, Average Gross Salary figures are from Eurostat’s Annual gross earnings in industry and services (2010) or the OECD’s Taxing Wages (2011).
3
4
Average Gross Salary figure for Bulgaria is for the manufacturing sector, 2010 data from the International Labour Organization (www.ilo.org). 5
Average Gross Salary figure for employees in Cyprus sourced from www.mof.gov.cy (2011).
Average Gross salary for manufacturing sector from Statistikos Departamentas (National Statistics Office of Lithuania) database (stat.gov.lt), 2011.
6
7
Figures for “total tax revenue as a percentage of GDP” are from the OECD (Oct 2012) or, where unavailable, from Eurostat (2008, for Romania, Latvia, Lithuania, Bulgaria, Cyprus and Malta).
Data provided by
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May 2013 © 2013 New Direction – The Foundation for European Reform Publisher and copyright holder: New Direction – The Foundation for European Reform Rue d’Arlon 40 1000 Brussels, Belgium Telephone: +32 2 808 7847
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